Question

The price of a stock on February 1 is $48. A trader sells 200 put options on the stock with a strike price of $40 when the option price is $2. The options are exercised when the stock price is $39. The trader's net profit or loss is

Answer 1

$200

Step-by-step explanation:

Given that,

Price of a stock on February 1 = $48

Trader sells = 200 put options

Strike price = $40

Option price = $2

Options are exercised when the stock price = $39

Net profit (Loss):

= Stock price - Strike price + Premium

= $39 - $40 + $2

= $1

The net gain for one put option is $1.

Therefore, the total net gain for 200 put options is as follows:

= 200 × $1

= $200

Hence, the trader's net profit is $200.